Investors interested in Wireless Equipment stocks are likely familiar with Ericsson (ERIC) and InterDigital (IDCC). But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Both Ericsson and InterDigital have a Zacks Rank of #2 (Buy) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that these stocks have improving earnings outlooks. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
ERIC currently has a forward P/E ratio of 12.90, while IDCC has a forward P/E of 23.89. We also note that ERIC has a PEG ratio of 1.53. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. IDCC currently has a PEG ratio of 1.59.
Another notable valuation metric for ERIC is its P/B ratio of 2.9. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, IDCC has a P/B of 7.87.
These metrics, and several others, help ERIC earn a Value grade of A, while IDCC has been given a Value grade of C.
Both ERIC and IDCC are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that ERIC is the superior value option right now.
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Ericsson (ERIC): Free Stock Analysis Report InterDigital, Inc. (IDCC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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